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Wednesday, July 25, 2012

A few years after the financial crisis of 2008, Sanford
Weill, the man behind the $70 billion merger of Travelers and Citigroup in
1998, urged the separation of investment banking from commercial banking. “Have
banks be deposit takers, have banks make commercial loans and real estate
loans, have banks do something that’s not going to risk the taxpayer dollars,
that’s not going to be too big to fail.” Even though banks had been able to
exploit loopholes such that Glass-Steagall had essentially been eviscerated by
the mid-1980s, Weill’s lobbying helped take down the law formally in 1999.

Weill might be illustrative of the
saying, “be careful of what you wish for; you might just get it.” By enabling
Citigroup to be a financial supermarket, he also made the bank “too unwieldy to
manage, hunched over by the weight of disparate businesses with little in
common and with byzantine corporate structures that made running the behemoth
incredibly difficult,” according to the New York Times. In such a condition and
yet too big to fail, the bank needed bailouts by the U.S. Government in
September 2008. Referring to breaking up banks like Citigroup, Morgan Stanley
and Goldman Sachs, Weill told CNBC on July 25, 2012, “I’m suggesting that they
be broken up so that the taxpayer will never be at risk, the depositors won’t
be at risk, the leverage of the banks will be something reasonable.” Why this
thinking had not gone into the Dodd-Frank Act of 2010 may point to the
inordinate influence of the regulated on law-making affecting them.

In other words, the public interest in
U.S. law may be dependent on business coming to the realization that additional
regulation is in the firms’ own financial interest. This does not bode well for
the public interest, being so conditioned. For the regulated do not normally
have such an enlightened self-interest. In the case of Weill, he may have
realized that especially with the incentives in Dodd-Frank, banks could be more
profitable were they smaller. For example, the law requires additional capital
reserves for the biggest banks. Nevertheless, greater profitability can result
from losing the disproportionate costs of integrating disparate businesses in a
huge financial supermarket or combination (this was Rockefeller’s name for
Standard Oil Co, as it replaced competition with coordination via a
monopolistic organization). Dodd-Frank comes up short even in terms of why
being big may not pay.

So why, one might ask, did Weill want a
financial empire in the first place? Even if empire-building does not pay off
financially in proportional terms, running a bigger company can pay off in
terms of experiencing the pleasure of power over others. Moreover, one can feel
that one’s hackneyed managerial tasks (even as a CEO) are somehow significant, if only in
terms of getting into the headlines. In explaining big business, more than a
financial calculator is necessary. In the end, the bankers’ resistance to
Dodd-Frank breaking up the biggies may have come down not just to ignorance,
but also to the lust for power (rather than merely for money). Whatever the
dominant motive, it is pretty clear that Congress has been following in its
wake rather than molding or channeling it from out in front.

Tuesday, July 24, 2012

Mired in
corruption, President Lee Myung-bak of South Korea reflected on the matter on
television in July 2012. “The more I think about it, the more it crushes my
heart,” he said. “But whom can I blame now? It’s all because of my negligence .
. . . I bow before the people in apology.” He had offered a similar apology the
previous January during his New Year’s speech. Although Kim himself was not as
of July implicated, three relatives, four senior staff, and several former
senior officials in the cabinet and government-run companies had been indicted
or convicted.

According to the New York Times, “The
president’s brother, a former lawmaker, has been charged with accepting bribes
from two bankers. Prosecutors said the bankers asked him to help prevent
regulators from shutting down their banks. The bankers have been charged with
embezzlement and bribery, and their banks’ operations have been suspended.” Moreover, Kim was just
the latest in a series of South Korean presidents politically damaged by
corruption scandals. It would appear that personal profiting from one’s
governmental (or business) position was at the very least a part of the South
Korean culture, if not tacitly accepted in government circles.

In my albeit rather limited
association with South Korean business, I have found the organizational culture
to be extremely hierarchical in the sense that officials at the top have near
carte-blanche (i.e., near absolute) power from the perspective of their
subordinates. Additionally, the underlings tend to cover up any mistakes or
failures from their bosses, whose world is thus held as though in the clouds.
In such a context, corruption can be rife.

It should be
noted that the extreme psychological distance in the organizational world in
South Korea is not without a basis in fact. The mentality of an employee at a
customer service call center is oceans away from that of even a mid-level
manager, who in turn can be distinguished from an organizational leader. Often
times, only the latter has the maturity to relegate the red tape by
prioritizing common sense and even just that which is natural in human-to-human
interaction. It is not uncommon, for instance, for people used to a certain
height to instinctively sense and relegate the gate-keeping games of the herd.
I suspect that in South Korea, the latter know they are eons away from their
superiors. The latter can use this natural distance to their own advantage in
covering up bribery and kick-backs. To this extent, the distance assumed by the
underlings is unjustified, even if on a general mentality basis it is fully
natural (and justified).

Therefore, even
though the corruption in South Korean government and business is hardly
justified from an ethical standpoint, a Nietzschean would quickly point out
that distance is natural, even necessary, for the strong such that they not
become infected by the narrowness of the herd. In the West, the organizational
creature can be rather insistent that its mentality must be binding even on
those above. In South Korean culture, by contrast, a lower mentality may have a
better sense of its place, and thus of the inherently limited nature of its
reach. That is to say, the presumptuousness of the herd animal is checked,
whereas it roams like an undisciplined child in the West. The question
regarding South Korea is thus how corruption may be checked without tossing the
baby out with the bathwater.

Sunday, July 22, 2012

With advertising accounting for more than 85
percent of its revenue, Facebook has faced great pressure in the wake of its
lackluster IPO to translate its unique asset, the
pile of personal data it collects from 900 million users, into advertising
revenue. I contend that Facebook’s handing over that data without first
grouping it is unethical on a gut level.